The governance, risk-taking, and performance of Islamic banks

Mollah, Sabur; Hassan, M. Kabir; Al Farooque, Omar; Mobarek, Asma

Abstract

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.

Citation

Mollah, S., Hassan, M. K., Al Farooque, O., & Mobarek, A. (2017). The governance, risk-taking, and performance of Islamic banks. Journal of Financial Services Research, 51(2), 195-219. https://doi.org/10.1007/s10693-016-0245-2

• Journal Article Type: Article
• Acceptance Date: Mar 15, 2016
• Online Publication Date: Apr 14, 2016
• Publication Date: 2017-04
• Deposit Date: Nov 23, 2016
• Publicly Available Date: Nov 23, 2016
• Journal: Journal of financial services research
• Print ISSN: 0920-8550
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 51
• Issue: 2
• Pages: 195-219
• DOI: https://doi.org/10.1007/s10693-016-0245-2
• Keywords: Corporate governance; Risk-taking; Firm performance; Islamic banks
• Public URL: https://hull-repository.worktribe.com/output/445521
• Publisher URL: http://link.springer.com/article/10.1007%2Fs10693-016-0245-2
• Additional Information: Authors' accepted manuscript of article published in: Journal of financial services research, 2017, v.51, issue 2. The final publication is available at Springer via http://dx.doi.org/10.1007/s10693-016-0245-2
• Contract Date: Nov 23, 2016